FTC: BlueHippo pocketed $15 million, only shipped one PC

BlueHippo offers computers to the poor on layaway. But the Federal Trade …

How sleazy could any company be with an adorable blue hippo for a mascot? Baltimore-based BlueHippo provides the answer: really, really sleazy.

The Federal Trade Commission (FTC) has had it with the company, which offers computers on layaway to those too poor to buy one outright. Buyers put up $99 to $124 in down payments, then make regular payments of $36 to $88. After 13 of these payments, the company says it will send out a computer, while the payments continue until the balance is paid off.

Unfortunately for the friendly folks at BlueHippo, the FTC smelled a scam. People were simply not getting machines, and BlueHippo's "cancelation policy" required people to send in prepaid money orders first even if their account had enough money to cover the necessary fees--not allowed under FTC consumer protection rules. In 2008, BlueHippo settled with the agency. Under the terms of the deal, BlueHippo would pay up to $5 million into a "consumer restitution pool" to reimburse those who had been burned.

At the time, BlueHippo thought this was a great idea. "The FTC staff was fair and professional, and after months of hard work we have fashioned a deal that satisfies all parties," said Andrew Campbell, General Counsel of BlueHippo, last year. "We are very excited about this settlement. The FTC is our only national regulator and the country’s most important consumer advocate. We've made tremendous progress growing our systems and programs since 2006 and we are very optimistic about our future."

So, more than a year later, how did the plan turn out? Well, when the FTC files court documents in which it accuses a company of being a "money pit," it's safe to say that the government isn't entirely pleased.

Inside the "money pit"

According to the FTC, the company's brazen business model continued without interruption after the 2008 settlement. "In fact, in the year following entry of this Court's Stipulated Final Judgment and Order for a Permanent Injunction, BlueHippo financed—at most—a single computer to the over 35,000 consumers who placed orders for computers that could be financed during the period," the FTC told a court (PDF) yesterday. In the meantime, the company took in a cool $15 million in payments from consumers, who don't appear to have received anything in return.

Here's how bad the situation was: according to an FTC footnote buried in the agency's new court filing, "the shipment of this [one] computer was most likely in error, rather than a computer that BlueHippo intended to finance."

Would you buy a computer on layaway from this hippo?

In April 2009, the FTC went back to the court and complained about the continued problematic behavior, seeking further penalties. BlueHippo suddenly started shipping computers. It had moved one machine between April 2008 and April 2009, but after the court filing, it suddenly ordered 4,056 computers.

But this didn't impress the FTC, either, which points out that 2,594 of the customers who received machines had not even met BlueHippo's financing criteria. In other words, the glut of orders only showed that BlueHippo's "haphazard, litigation-driven efforts were not truly reflective of their business practices, but rather an effort to stave off further law enforcement action."

BlueHippo also failed to do basic things like file the FTC reports it had agreed to as part of the agency's oversight. In April 2009, a federal judge ordered the company to pay $2,500 a day until the report was filed; it took the company five days, resulting in a $12,500 sanction. But the report didn't please the judge, who took a look at it and then "imposed an additional daily sanction of $5,000 per day for BlueHippo's continued failure to provide responsive information to the FTC." After another $20,000 in fines, BlueHippo finally turned over the detailed information in question.

Seeing red

The FTC has had it, and today went back to court asking a federal judge for a contempt order against BlueHippo.

"Years of broken promises by BlueHippo have left consumers seeing red," said FTC Chairman Jon Leibowitz in a statement. "We’re putting companies like this on notice: If you mistreat consumers and thumb your nose at the courts, we will hold you accountable."